Rajasthan’s Power Crisis is Of its State Government’s Own Making - An Analysis

While India and the whole World face an Energy Crisis that doesn't seem to be diminishing anytime soon, things have gone from bad to worse in Rajasthan's Power Sector with record-high bills and unannounced power cuts throughout the State. The matter has generated considerable political heat in the state, with the Leader of Opposition in the Vidhan Sabha Gulab Chand Katariya cornering the government on the exceedingly high power bills and former Chief Minister Vasundhara Raje slamming the government on the issue of power cuts, blaming it for mismanagement.

Politics apart, there are several layers to the problem that need to be unraveled to truly understand the origins of the so-called Desert State's power woes that have led them into this storm. The reasons are manifold, with some being systemic while uncontrollable factors also coming into the picture now. However, as one will see, the state government has left much room for desire on the issue, and carries much of the burden on the subject. 

High Cost of Power Headed Further North, Discoms Back to Square One

The cost of electricity has touched Rs 8.13 per unit in Rajasthan. In contrast, the same is just Rs 6.76 in Uttar Pradesh and Rs 5.65 per unit in Haryana. Adding to the state’s woes is the state's loss in a case to Adani Power Company in a reckless tariff dispute over Coal payments.  The extra ₹7,400 crore that the state now has to pay will definitely translate into an even higher bill for consumers further for at least another 36 months. The state of Rajasthan has now also applied a Mandatory Charge of ₹800 in the form of Connection Load even if there's zero Electricity used by a connection. This price, along with cuts, can be expected to rise further in the coming days.

 The previous Government had signed the state up for a comprehensive reform package under the Centre’s Ujjwal Discom Assurance Yojana (UDAY) in 2015. As per the scheme, the state government took over the discom’s losses on its fiscal balance, thus bailing out discoms and making them debt-free. This debt was then leveraged in the form of state fiscal bonds for the market, thus lowering the interest to be paid out. At that time, there was certainly an improvement noted in the losses that took place till the government changed, a clear sign of which can be seen in the fact that the losses started rising sharply yet again, even before the beginning of the COVID pandemic.

Source: Analysis based on Power Finance Corporation Data

This plays out in the form of rampant electricity theft that has started to rise again, creating a new burden on the over 1.5 crore consumers of the State. What is interesting to note is that. Interestingly, the sharpest jump in losses is for the Jodhpur circle, which is interestingly the base of the present Chief Minister of Rajasthan Ashok Gehlot.

 However, there was a significant jump noted in the average cost of supply with the change of government even before the COVID pandemic hit, as Power Finance Corporation data suggests. Instead of the stability seen during the BJP tenure, there was a sharp spike in the average cost of supply for the state’s discoms.

Source: Analysis based on Power Finance Corporation Data

Clearly, despite all this load to consumers over the last years, the losses of Electricity Companies in Rajasthan have again crossed ₹86,000 crore with a loss of ₹6,740 Crore in the last financial year. That the revenue gap has increased significantly despite being a signatory to the UDAY scheme pre-pandemic reflects that the present government has chosen a blind eye approach towards fulfilling commitments to discom reforms.

Source: Analysis based on Power Finance Corporation Data

Unwillingness to Pay Coal India Dues

Rajasthan has had high Coal India dues for the longest time. Its state utility, Rajasthan Rajya Vidyut Utpadan Nigam Limited, owes Coal India Limited (CIL) ₹774 crore presently. The Centre’s exhortations to pay the outstanding dues clearly seem to be going on deaf ears in the present circumstances. The low level of coal stocks or in some cases even zero days of coal stocks for thermal power plants has resulted in the closure of many of their units.

The problem had in fact turned up in August 2021 itself, when it was discovered that the state genco, Rajasthan Vidyut Utpadan Nigam Ltd (RVUNL), on which the state is substantially, dependent, had run out of cash to pay for coal and keep running the state’s power plants. In fact, the state owed at that time The state power generator company (RVUNL) owes ₹850 crore to CIL and ₹1,850 crore to Paras Kanta Colleries Limited (PKCL). To tide over this shortage, the state has in fact been buying power from the exchange at ₹17/unit during peak hours! This despite cheap power usually being available on the Indian Energy Exchange (IEX) is a result of higher cross-subsidies and additional surcharges besides wheeling charges that all consumers including discoms end up paying, thanks to the regulatory regime prevalent in the state.

 

Seasonal Changes in Demand Impacted by Climate Change

The demand for Electricity has significantly varied recently due to the Climate Changes in the State. In September this year, while demand decreased for the districts with Rain showers, it increased by 250 lakh units in just three days for those without it. Good Rain in the State could've helped cover a part of the Electricity Shortage, but recently, they haven't been uniform either and thus the abnormal increase in demand.

It is certainly not the case that the state always had good rainfall in the past. However, the unpredictable and erratic rainfall has come up with a problem of its own. These rains have overwhelmed the State's limited hydro capacity, leading to flood-like conditions in some regions of India's largest state, whereas there's drought in others and the Government has done little to prepare for the same in future. With no support from the climate, the State Government has thus often also resorted to buying costlier Electricity and removed the ceiling on maximum price for buying in energy exchange multiple times.

What has also surfaced from a glance at the data is that the consumption in Rajasthan has increased significantly. A monthly power demand analysis based on POSOCO data for the month of July between 2013 and 2021 has in fact shown an upward trend in power demand. Given the presence of this data, there is a reflection of the inability of the state to plan accordingly for the monsoon period each year.

 

Source: self analysis of POSOCO data 

Surrendering Contracts is a Challenge, Ignoring Central Assistance

Payments according to decades-long contracts have resulted in the purchase of Electricity at prices as high as ₹12 per unit. The application of Fixed Charges that are even much more than the actual electricity costs at the present time to production companies has continued in full swing without a moment of thought from the Gehlot Government or the State's Discoms. These Fixed Charges were paid to 7 of these plants even when no electricity was bought from them.

While the state like many others is facing this legacy problem, fiscal irresponsibility means that the state does not have any bandwidth to even consider surrendering any of these contracts. ₹3,800 Crore in payments was made as per these long term PPAs between April 2020 and March 2021 even while the Discoms were themselves already financially strained and the State was suffering due to COVID.

Covid was a black swan event, but Atmanirbhar Bharat gave an option in the form of Liquidity Support of Rs 90,000 Crores presented to power discoms to improve their financial situation. The Union Government intended to support State Governments while promoting state-level reforms and safeguard the interests of farmers while making the power sector sustainable.

As the presentation of details of the fifth tranche announced by Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman under Aatmanirbhar Bharat Abhiyaan to support Indian economy in fight against COVID-19, May 17, 2020 clearly highlights:

Inefficiencies of discoms will not be passed on to the consumers. Standards of Service and associated penalties for DISCOMs will be defined prompting discoms to ensure adequate power and avoiding load-shedding.

In accordance with this, the State Government could have taken ₹2,000 crore in the first tranche, but they failed. Similarly, the second tranche would have amounted to ₹2,490 crore.

Clearly, a combination of mismanagement, legacy issues and inability to ensure adequate advance planning has always existed. The latest manifestation of coal availability will not necessarily solve the problems of Rajasthan in the present circumstances unless a conscious effort to break clean from past intransigence does not take place. 

(This piece has been authored with Vaibhav Jareda, an IIT Delhi student who is interested in public policy)